The mutual fund industry is trying to create new distribution structures in light of the recently amended DOL fiduciary rule and its emphasis on distribution practices in the broker-dealer space.

Now the SEC's Division of Investment Management has issued a no-action letter confirming that brokers can assess individualized sales charges or commissions against their client's purchase of fund shares without running afoul of Section 22(d) of the 1940 Act. The staff's no-action letter can be found here.

The letter addresses so-called "clean shares," which have no sales or distribution charges imposed by the fund and payable to the broker. The letter confirms that brokers acting solely as agent for their clients may create and assess their own commission schedule. Per the staff, the fund cannot receive any portion of the amount charged by the broker to its client.

The notion that brokers are not bound by Section 22(d) to charge uniform commissions to their clients has been around for over 40 years. But the letter makes clear that brokers are NOT within the fund's chain of distribution when they act for their clients and do not receive compensation from the fund for their activities.

It clearly does not apply to them on its face, but sponsors and distributors of non-traded REITs, BDCs, closed-end funds and other products will want to consider whether they too can create "clean" share classes of their own, and not just for institutional purchasers. One issue is whether such a class can pay a dealer manager or principal underwriter fee out of the investor's purchase price while still allowing the broker to set and charge its own commission schedule. Moreover, much will turn on whether brokers are willing to create a workable commission structure of their own and impose it on their clients' purchases of program interests.